Bernanke Defends Transparency Push

Federal Reserve Chairman Ben Bernanke on Monday defended a push for greater central bank transparency during his tenure, arguing it is essential for public acceptance of Fed policies and can help ease financial conditions with interest rates at zero.

Bloomberg

Ben S. Bernanke

The Fed has come to rely increasingly on verbal guidance about the likely path of short-term interest rates, most recently saying it is committed to leaving them near zero until the jobless rate falls to 6.5% from its current 7% — and as long as inflation remains under control.

“Improved communication can help our policies work better, whether through the disclosure of bank stress-test results by helping the public and market participants better understand how monetary policy is likely to evolve,” Mr. Bernanke said at a Fed event celebrating the institution’s 100th birthday.

“Ultimately, the most important reason for transparency and clear communication is to help ensure the accountability of our independent institution to the American people and their elected representatives,” said Mr. Bernanke, who is set to be replaced in February by Vice Chairwoman Janet Yellen, pending her Senate confirmation.

Reflecting on two four-year terms at the Fed’s helm that will draw to a close at the end of January, Bernanke also urged policy makers to continue to stand up to political efforts to influence monetary policy.

In the 1970s, that pressure came from those who did not want then-chairman Paul Volcker, also present at Monday’s event, to raise interest rates despite sky-high inflation. During Mr. Bernanke’s term, the pressure has tended to originate with those who opposed the central bank’s unconventional monetary policy, such as bond purchases.

However, Bernanke argued such tools were essential to dealing with what was essentially a traditional bank run in a banking system that had evolved to be very different from its traditional form.

“We found that these new tools were necessary if we were to fulfill the classic functions of a central bank in the context of a 21st century economic and financial environment,” he said.

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